Advantage Data: Auto services, health care lead as major junk sector rise continues

By Paul Deckelman

New York, July 2- The high-yield market scored its fourth successive weekly gain last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That data showed a majority of the sectors showing gains. High yield thus continued to stabilize and move up after breaking out of a recent choppy performance pattern, starting in May, which had seen alternating weeks of gains and losses over a period of more than a month.

With the latest week's rise, gains have now been seen in five weeks out of the last six, in six weeks out of the last eight and in eight weeks out of the last 10. On a longer-term basis, there have been just four losses in the 26 completed weeks since the start of the year, versus 22 advances.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 65 finished in the black last week, just four ended in the red and four other sectors did not generate sufficient activity to produce any kind of a number.

That represented a continuation of the positive trend seen the previous week, ended June 22, when 67 sectors finished higher, four closed lower and two additional sectors showed no activity.

Mirroring the overwhelmingly positive pattern seen in the overall high-yield universe, 29 out of the 30 most significantly sized sectors - as measured by the number of bond issuers, the collective number of issues tracked and their total face amount - ended in the black this week, with only one in the red.

That also represented a continuation of the trend seen the prior week, when all 30 of those sectors had showed gains, against no losses.

Among specific major sectors in the latest week, bonds of automotive services providers - chiefly vehicle -rental companies - and health care operators turned in the strongest performances, with building construction also doing well.

Only one significantly sized sector actually showed a loss - coal mining, returning to its usual role as the market's favorite whipping boy among those major sectors, after surprisingly leading all of those sectors the week before.

Statistical indicators of general market performance were up across the board on the week, including the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, which posted its fourth straight weekly gain, and hit a new high level for the year.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.586% as of the close Friday, on top of the previous week's hefty 0.988% advance. There have been seven weekly losses so far this year, against 19 gains.

The latest week's advance lifted the index's year-to-date return to 7.053% on Friday, up from 6.429% a week earlier. That not only eclipsed the previous high-water mark for 2012 of 6.80%, established on May 7, but also marked the first time this year the index has been above the psychologically potent 7% mark. It was, in fact, the index's highest reading in 18 months - since the 15.19% year-to-date return notched back on Dec. 31, 2010. The index had finished 2011 with a 4.383% return, and its highest reading last year was 6.362%, on July 26, 2011.

Other components of the Merrill Lynch index also showed improvement on the week. As of Friday, the index showed an average price of 100.630, a yield to worst of 7.289% and a spread to worst of 649 basis points over comparable Treasuries, versus the previous week's price of 100.169, a yield of 7.444% and a spread of 661 bps.

Autos, health care on top

Back on a sector basis, Advantage Data meanwhile showed bonds of automotive services companies, such as vehicle-rental services, and health care concerns, both with returns of 1.07% on the week, tops among the significantly sized sectors.

Building construction (up 0.83%), precision instrument manufacturing - chiefly medical device makers (up 0.74%) and chemical manufacturing (up 0.71%) also showed strength on the week. It was the second consecutive week among the Top Five finishers for the chemical companies, which had also been there the week before with a 1.10% gain.

Coal fire dies out

On the downside, bonds of only one significantly sized sector were showing negative results - coal mining (down 0.94%).

It marked a return to normalcy for the volatile sector's paper, which unusually had actually been the best-performing major sector the week before, when coal zoomed by 2.44%. That anomaly followed five straight weeks before that in which the coal grouping had been among the worst-performing sectors, several times turning in the worst performance of all.

With no other key sectors actually in the red, the Bottom Five in the latest week was rounded out by sectors just showing smaller gains than their peers - metals processing (up 0.08%), food stores (up 0.22%), transportation equipment manufacturing (up 0.31%) and publishing (up 0.34%).

Among those sectors, it was the food stores' second straight week among the underachievers and the third consecutive week there for metals processing; each had also been there in the week ended June 22 with paltry gains of 0.17% and 0.08%, respectively.

Real estate in lead for year

Twenty-six weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a 15.21% cumulative return, its fourth consecutive week in the top spot and on a longer-term basis, the 19th week out of the past 22.

Building construction - which had temporarily displaced real estate as the year-to-date leader in the week ended June 1 - remained in its more usual second-place spot for a fourth straight week, with an 11.96% gain on the year.

Not too far back were depository financial institutions (up 11.57%), insurance carriers (up 10.11%) and one of the week's big leaders, automotive services (up 9.05%).

On the downside, coal was the only major-sized sector in negative territory for the year so far, showing a 5.73% loss.

Others posting just relatively modest gains on a cumulative basis included oil and gas exploration and production (up 4.01%), petroleum refining (up 4.47%) and machinery and computer manufacturers (up 4.62%).

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